The Impact of America’s Declining Reputation on the Economy

My Three Cents

Ken Makovsky

Friday, June 23, 2017

The Impact of America’s Declining Reputation on the Economy

A striking headline in Salon totally grabbed my attention recently: America’s worsening global reputation could put billions in U.S. exports at risk. Three professors from Drexel University – one economist and two marketers – had wondered whether the concept of “reputation” really matters for a country. They set out to determine if “soft data” like a country’s reputation could have a hard impact on a nation’s economic performance. The results: eye-opening and, as the professors stated, “amazing.” More about that in a minute.

The fact of the matter is that recent studies confirm that America’s reputation is indeed declining on the international stage. Take, for example, U.S. News & World Report’s annual “Best Countries” ranking for 2017. The U.S. fell by three places, from #4 in 2016, to #7 among 80 countries studied.

How did U.S. News measure a country’s reputation? By surveying perceptions of 21,000 people over the world on 65 attributes deemed as influential in how people think of different countries. Attributes include military power, popular culture (e.g., movies, books, social media), government policies, leadership, quality of life, hospitality, etc. Particularly thorny for the U.S. were declines in perceptions about U.S. business friendliness, attractiveness as a tourism destination, and citizenship (a category covering a country’s progressiveness and inclusiveness). One disturbing finding was “More than 70 percent of survey respondents lost respect for U.S. leadership as a result of the toxic nature of the U.S. election.”

Lest you think this ranking may be an outlier, Forbes’ “Best Countries for Business for 2017,” confirmed a reputation decline for the U.S. but said the slump was “continuing a decade-long slide from its #1 ranking in 2006” in terms of having a favorable environment for business.” (The U.S. fell one position to #23 this year.) And a survey by Pew of citizens in 10 European Union countries found 85% lacked confidence that the new U.S. President would do the “right thing” in world affairs. Further, as reported by NBC News, a Foursquare survey found that travel to the U.S. has dropped by 16% since the new administration came into office.

Now that we’ve covered the reputation part of the equation, let’s get back to its relationship of reputation to a country’s economic performance and the three Drexel professors.

I don’t have the space to detail the methodology behind their statistical model – you can check it out in Salon and judge for yourself. But I share the professors’ reaction (“amazing”) to their study’s key conclusion: a single-position drop in a country’s reputation was associated with a decrease in its export volume of 2%. They cited the trade relationship of the U.S. with Canada as an example of how this might play out:

“If the U.S. dropped one reputational rung among Canadians, we would expect – all things being equal – a corresponding 2% decrease in exports from Canada.” That would amount to a potential loss of more than US$5 billion if this was applied to 2016, they wrote. And for a large exporter like the U.S. with about $15 trillion in exported goods annually, a “uniform drop in reputation could put tens of billions in manufacturing exports in jeopardy.” (Improving reputation would have the reverse effect, resulting in gains.)

Given these findings, the Drexel professors believe that the current U.S. Administration may be shooting itself in the foot, in terms of how it is tending relationships with some key trading partners. While Washington wants to grow the economy, it appears to be neglecting the U.S. reputation’s factor. What should be done about it? More about this in a future blog.